2.1.1 Growth

Question 1

What are the business objectives of growth?

4

Answer 1

• Increase profitability
• Gain market power over consumers and suppliers
• Benefit from economies of scale
• increase market share and brand recognition

Question 2

What are external economies of scale?

e.g governemnt investment in infrastructure

Answer 2

External economies of scale is where the firm increases their scale of production due to a factor within the industry they operate in.

Question 3

What are financial economies of scale?

Answer 3

Commonly benefiited by larger firms as this is where firms can access credit such as large sums of money through loans with relatively low interest rates due to their high credit ratings.

Question 4

What are diseconomies of scale?

Answer 4

When scale of production increases however the firm becomes too big and start to see decreasing returns to scale and so AC rise.

Question 5

What are 2 examples of diseconomies of scale?

Explain

Answer 5

Internal communications diseconomies of scale, the firm grows so large that communicating between each other becomes less effective so implement new methods which are more costly.
Coordination dieconomies of scale, It might become increasingly difficult to motivate workers and actually manage and coordinate the increased number of customers.

All these examples of diseconomies of scale cause for AC to increase.

Question 6

What are skill shortages and how do they arise

Answer 6

Skill shortages are when there aren’t enough workers to carry out the needs and provide expertise for the firm. These arse from geographical and labour immobility. Geographacial immobility, individuals are unable to move for work and between different jobs. Labour immobility, the individual doesmt have the required skills/human capital to move between jobs.

Question 7

What are the problems arising from growth

Answer 7

• Diseconomies of scale
• internal communications
• potential skill shortages